Update: AMD-Intel Patent Fight Riled by Fab Spinoff

Intel has formally notified AMD that its GlobalFoundries fab spinoff violates the terms of a 2001 patent cross-licensing agreement, AMD said Monday morning. The issue: is the new GlobalFoundries fab a competitor, or a subsidiary?

Intel has formally notified AMD that its GlobalFoundries fab spinoff violates the terms of a 2001 patent cross-licensing agreement, AMD said Monday morning.

In a filing with the SEC, AMD said that Intel had notified the company that the fab spinoff represented "a material breach" of the 2001 agreement. Intel said it will terminate the cross-license within 60 days if the "alleged breach has not been corrected", according to AMD.

An Intel spokesman confirmed Monday that the company had formally notified AMD, after a discussion between representatives of both companies had failed to produce a resolution. Intel had then sent a letter to AMD warning it of the potential breach of the licensing agreement.

On March 4, GlobalFoundries officially spun off from AMD, as the former chipmaker moved to what it called an "asset smart" model of fabless chip design.

AMD said that the 2001 agreement contained procedures for settling disputes, and that AMD had begun acting according to those procedures. Intel spokesman Chuck Mulloy said the next step, according to the licensing agreement, was to proceed to mediation, which Intel hoped to accomplish within the next 60 days.

What it means

The issue boils down to this: if GlobalFoundries is covered under the cross-licensing agreement, then AMD can manufacture its processors legally, as it originally intended to do.

Intel's concern is that establishing a licensed fab allows any potential GlobalFoundries customer to approach the company and legally manufacture a knockoff to Intel's X86 architecture  which, along with Intel's manufacturing technology, forms the foundation of the company. That scenario previously occurred in 1994, when Cyrix Semiconductor approached IBM, which had an X86 license, and secured a manufacturing agreement. IBM also had the right to manufacture an equal number of chips under its own brand, further diluting the X86 market.

However, successfully blocking AMD from manufacturing chips at GlobalFoundries would also be a catastrophic blow for AMD.

"We really won't know for a while," said Dean McCarron, principal analyst at Mercury Research. "It comes down whether the [GlobalFoundries] foundry is licensed or not. If everything went wrong... AMD wouldn't be able to manufacture anything in the foundry."

According to Intel's Mulloy, the legality of the licensing agreement appears to hinge on two issues. The first is what GlobalFoundries is defined as, under the terms of the agreement: either a subsidiary, or, in Intel's view, a competitor. Under a redacted copy of the 2001 cross license, a "subsidiary" is a company in which AMD "owns or controls (either directly or indirectly) or originally contributed (either directly or indirectly) at least fifty percent (50%) of the tangible and intangible assets of such
entity".

In October, AMD chief executive Dirk Meyer said that the agreement would be "consistent with all of AMD's IP licensing agreements." But according to the deal, AMD owns just a 44.4 percent stake in GlobalFoundries, with the majority owned by the Advanced Technology Investment Co., a fund owned by the government of Abu Dhabi.

According to AMD spokesman Dave Kroll, however, AMD does fulfill the 50 percent asset clause through its contribution of its two fabs, which make up 50 percent of the assets. "Trust me, with the amount of hours we spent putting together the GlobalFoundries legal argument...all this does on Intel's side is make people nervous," Kroll said. Intel helped define the terms of the cross-licensing agreement, he added.

Intel can not discuss the second objection, as it is hidden in the redacted portion of the contract, Mulloy said. Intel is encouraging AMD to make the full, unredacted version of the agreement public, he said. For his part, Kroll said that AMD was prepared to publish the full agreement if Intel would drops its protective order on the civil litigation between the two companies, which dates back to 2005.

McCarron said that when Intel sees is X86 technology possibly being infringed, that the company has aggressively defended it. He also said it is to Intel's advantage to place GlobalFoundries and AMD under "a cloud", something that AMD appeared to try and diffuse with its own statement.

"Intel's action is an attempt to distract the world from the global antitrust scrutiny it faces," AMD said in a statement provided to reporters. "Should this matter proceed to litigation, we will prove not only that Intel is wrong, but also that Intel fabricated this claim to interfere with our commercial relationships and thus has violated the cross-license."

Intel's actions represent its own breach of the contract, AMD added, which would allow AMD to retain Intel's patents. "In addition, the Company [AMD] has informed Intel that Intel's purported attempt to terminate the Company's rights and licenses under the cross license itself constitutes a material breach of the cross license by Intel which gives the Company the right to terminate Intel's rights and licenses under the cross license agreement while retaining the company's rights and licenses under the cross license agreement," AMD's SEC filing said.

Although the issues so far amount to just a few legal definition, the stakes are enormous for both companies, with billions of dollars on the line.

"Intellectual property is a cornerstone of Intel's technology leadership and for more than 30 years, the company has believed in the strategic importance of licensing intellectual property in exchange for fair value," said Bruce Sewell, senior vice president and general counsel for Intel, in a statement. "However, AMD cannot unilaterally extend Intel's licensing rights to a third party without Intel's consent. We have attempted to address our concerns with AMD without success since October. We are willing to find a resolution but at the same time we have an obligation to our stockholders to protect the billions of dollars we've invested in intellectual property."

Editor's Note: This story was updated at 10:11 AM on March 16 with additional comments from McCarron and Intel's Mulloy, and at 10:30 PM with additional comments from AMD.